Naming names: unread reports, lowballed estimates, downplayed risk — what were Muskrat Falls officials thinking?

ST. JOHN'S, N.L. — Political bias, purposely misleading statements, and lies to the public of Newfoundland and Labrador are central to Commissioner Richard LeBlanc’s final report on the Inquiry Respecting the Muskrat Falls Project.

LeBlanc’s final report is a step-by-step account of the failure of public servants, both elected and unelected, to ensure the Muskrat Falls hydroelectric project was in the best interest of the people of Newfoundland and Labrador.

LeBlanc does not hold back in assigning blame for what went wrong in the “misguided project.”

“There is no doubt that Nalcor, and in particular Edmund Martin, must be faulted for intentionally failing to disclose to GNL (Government of Newfoundland and Labrador) relevant information on costs, schedule and risk before project sanction, before financial close and thereafter. If GNL had received full disclosure from Nalcor before sanction, it would have been in a position to properly evaluate the project and provide the public with truthful and accurate information on project costs, schedule and risk,” reads the report.

“There is also no doubt that GNL politicians and officials must be faulted for failing to provide a reasonable level of oversight of Nalcor, for placing an unjustified amount of trust and blind faith in that corporation and for the naivety that they demonstrated in accepting, without a comprehensive independent review, Nalcor’s DG3 (Decision Gate 3) cost estimate and schedule.”

Premier Dwight Ball and Natural Resources Minister Siobhan Coady told reporters on Tuesday the report has been referred to police and the Department of Justice for potential legal action against public servants and politicians who allowed the project to go so far awry.

“When you read the report, you will see very clearly there was information that was available that wasn’t provided and decisions made on numbers that were not accurate at the time. We’ll leave this to the police and to Justice and Public Safety,” said Ball.

“There was a limited review with a legal lens on this report, ensuring that nothing was going out there that would be detrimental to any on-going litigation,” said Coady.

“In their review of that report, they indicated that there is likely grounds to send this to the police and that is exactly what we’re doing. It’s up to the police departments in their investigation to do with it as they see appropriate.”

The failings

The LeBlanc report outlines that the project was staffed from the top down with people inexperienced in megaproject development.

“It appears that he did not have any direct involvement in significant engineering, construction or project management endeavours, nor any prior experience with hydroelectric or transmission line projects,” reads the report, regarding former Nalcor CEO Ed Martin.

On current Nalcor executive vice-president Gilbert Bennett, who was hired to lead the development of the Muskrat Falls project, the report says, “He had not worked on any megaprojects prior to joining Nalcor.”

On Paul Harrington, project director for the Lower Churchill project: “His scope of work and level of responsibility at Nalcor would be significantly greater than at any position he had previously held.”

The Muskrat Falls project was first announced by then-premier Danny Williams in 2010. Then-premier Kathy Dunderdale announced the sanctioning of the project in 2012 with a $6.2-billion price tag.

That price tag was a lie, according to the report.

“The project cost was knowingly understated by Nalcor at the time of sanction,” reads the report.

“Nalcor’s estimates were affected by optimism bias, strategic misrepresentation and political bias.”

The report says politicians and Nalcor executives had little experience handling a project of such scale, and did nothing to bolster their readiness to handle managing and overseeing any megaproject.

“Before project sanction, it would have been very easy for Nalcor and the Government of Newfoundland and Labrador (GNL) to have educated themselves on the history of cost overruns and schedule delays for megaprojects and their failure to do this is indefensible,” reads the report.

The report goes on to explain the lack of oversight by the provincial government.

“No one in GNL appears to have bothered to conduct any research on megaprojects, even though well before 2012 there were textbooks, articles, reports and other online information available on this subject,” reads the report.

“It has been common knowledge for decades that megaprojects have a history of substantial cost overruns.”

The report says Martin knew those meant to oversee the project were inexperienced, and used that knowledge to his advantage.

“Nalcor officials knew that the GNL officials and politicians who worked on the project were considerably over their heads and unqualified to evaluate cost, schedule and risk,” reads the report.

“Nalcor officials took full advantage of this serious and glaring weakness when they should have recognized that this imposed on them an even greater duty to ensure that GNL was fully informed and understood the cost, schedule and risk.”

In 2013, Nalcor knowingly delivered a false cost estimate to then-finance minister Tom Marshall, the report states.

“With Mr. Martin’s approval, Nalcor had confirmed in writing to Finance Minister Thomas Marshall on November 1, 2013, that the cost estimate remained at $6.2 billion,” reads the report.

“This was clearly misleading.”

How misleading?

Former deputy minister of natural resources Charles Bown

Shortly before the financial close of the project in late-2013 — the last chance the government had to pull back and re-evaluate the project — the first cost increase became known.

“Certain GNL civil servants were aware of the $300-million increase at the time of financial close, but they did not inform their ministers about it,” reads the report.

“Deputy minister Donna Brewer and director of debt management Paul Myrden of the Department of Finance were aware of it and they should have communicated this information to Finance Minister Marshall, especially since they were aware that he had recently asked to be informed of any changes to the cost estimate.”

Charles Bown, who is currently a deputy minister with the Department of Tourism, Culture, Industry and Innovation, was responsible for gathering information on behalf of the provincial government.

“Mr. Bown was GNL’s point person and conduit for information from Nalcor on the project. It is likely that he, too, was aware of an increase in the cost estimate of the project before financial close, but he failed to take any steps to advise the minister of natural resources and the premier,” reads the report.

“His failure to report this information to his minister is inexcusable.”

LeBlanc says there is clear evidence that information sharing between Nalcor and the government was flawed.

“The flow of information between Nalcor and GNL was loose, unstructured and informal. There was neither a reporting protocol nor policy directive to guide it,” reads the report.

“GNL did not have the necessary capability or resources to meaningfully challenge, test or evaluate the information that it was receiving from Nalcor.”

“The fault for any deficiency in disclosure from Nalcor to GNL must be assigned to Mr. Martin.” — Report

But the largest blame for lack of information going to the government rests with the former CEO, according to the report.

“Edmund Martin assumed full responsibility for, and had absolute control over, the information provided to GNL. Because of GNL’s failure to provide a formal protocol defining its communication expectations from Nalcor, it was left to Mr. Martin to decide which information on cost estimates, schedule, risks and other matters would be communicated to GNL,” reads the report.

“The fault for any deficiency in disclosure from Nalcor to GNL must be assigned to Mr. Martin.”

Astaldi expenses

The contract with Italian company Astaldi to build the Muskrat Falls Generating Station is the single biggest cause of cost overruns for the project.

The initial contract was valued at $741 million. But problems were quick to arise and slow to be solved.

Despite full knowledge that Astaldi had little experience working in cold-weather environments, Nalcor proceeded to award the contract. Initial concerns were alleviated by a promise by Astaldi to hire Canadian contractors to work on the project.

Another compromise was a promise to build a dome (referred to as the integrated cover system, or ICS) over the generating station site to allow work to continue in the harsh Labrador winter.

“Originally planned to be finished in March 2014, construction on the ICS did not begin until July 2014, and the subcontractor building the ICS had ongoing disputes with Astaldi,” reads the report.

“The ICS was still unfinished by the end of 2014. Astaldi abandoned it in May 2015 and began disassembling the partially completed ICS structure in October 2015. This all affected the project schedule and had knock-on effects for the work of other contractors.”

After a myriad of issues on site, including high management turnover, paired with slow progress, an extension to the contract was signed in 2016.

“Under this contract, Nalcor paid Astaldi an additional $884 million, bringing the total package cost to $1.908 billion,” reads the report.

Indigenous voices overlooked

The issues with the project and its relationship with Indigenous populations in Labrador continue today.

The report is sharp in its assessment of consultations with Labrador's Indigenous people.

Commission Richard LeBlanc. - SaltWire File Photo

“GNL failed to ensure that it and Nalcor acted fairly in its consultations related to Indigenous peoples and environmental matters. While not speaking to GNL’s legal obligation regarding consultation with the Indigenous groups in Labrador, GNL did not act appropriately from a fairness perspective with the Nunatsiavut Government, the NunatuKavut Community Council and the Innu of Ekuanitshit,” found the report.

“GNL and Nalcor created an environment of mistrust and suspicion by not allowing all of the Indigenous peoples and other concerned citizens to engage in a meaningful and transparent consultation process. This mistrust and suspicion led to protests that caused project delays and significant cost overruns.”

Those protests, in 2016, led to the establishment of the Independent Experts Advisory Committee (IEAC) by Ball.

The IEAC voted to order the government to cap wetlands at the Muskrat Falls reservoir.

Ball’s government did not follow through.

“GNL did not respond to these recommendations for several months despite receiving repeated reminders from the IEAC. In January 2019, GNL approved wetland capping,” reads the report.

“However, by then it was too late to implement this process before the impoundment of the reservoir began in July. The reservoir is now fully impounded and none of the promised mitigation measures have been implemented.”

Failing the public

The 1,200-page report gives numerous examples of mismanagement, deceit and incompetence by government officials meant to be acting in the public good.

Former premier Danny Williams. - SaltWire File Photo

In his conclusion, LeBlanc outlines the massive impact the failings of the project has had on public confidence in the Government of Newfoundland and Labrador.

“At the time the Muskrat Falls project was initiated, there was much optimism in Newfoundland and Labrador. Resource revenue from offshore oil and the impact of the Atlantic Accord made the province’s financial future brighter than it had ever been. Politicians were communicating with bravado and confidence,” wrote LeBlanc.

“In his testimony before the Commission, Danny Williams spoke of his efforts during his seven years as premier to build the confidence of the people of this province and ‘make them feel good about themselves.’ He faulted the project’s critics for the loss of confidence that is now prevalent in the province.

"It is clear to me, however, that it is not those critics or the people with negative views about the project who are to blame for this loss of confidence. Rather, it is the province’s current financial position and the loss of opportunities, both of which have been caused by the need to pay for the Muskrat Falls project on the terms negotiated. That is what has caused many residents of this province to become concerned about the future.”

Twitter: @DavidMaherNL